The Treasury Select Committee of MPs said its investigations, including into mortgage prisoners, highlighted the need for greater powers for the FCA around its regulatory perimeter.
It proposed a process for the FCA to be able to request information from non-regulated firms – a matter which has been particularly detrimental in the case of mortgage prisoners.
Change regulatory perimeter
The committee called for the FCA to be given the formal power to recommend to the Treasury changes to the perimeter of regulation, with all recommendations publicly disclosed, providing greater transparency and focus to the process.
“The present system of regulation relies on an informal relationship between the Treasury and the FCA to consider whether the perimeter lies in the correct place,” the committee said.
“The committee considers this ad-hoc system now to be insufficient. The FCA has made recent efforts to monitor the perimeter, most recently via the analysis published in its Perimeter Report.
“Its warnings on the potential harm to consumers at, and beyond, the perimeter must be heeded.”
“The concerns around the actions of RBS Global Restructuring Group, mortgage prisoners and the failure of London Capital and Finance are all examples seen by this committee of the need for further action.”
It added: “All such recommendations and Treasury replies should be publicly disclosed. This would formalise the relationship described by the minister, and in so doing provide greater transparency and focus to the process.”
Constraints around information gathering have been particularly important for the FCA in its work around mortgage prisoners.
The regulator is unable to require data from unauthorised lenders and has therefore been limited in its analysis and understanding of these trapped borrowers.
As a result, the committee is recommending the FCA be given powers that equal or exceed those given to the Bank of England’s Financial Policy Committee (FPC).
“Without greater information gathering powers, the FCA will always struggle to assess the risks to consumers at, and beyond, the perimeter. It will therefore be, in its own words, reactive,” the MPs noted.
“The FPC has the power to recommend that the Treasury order additional information from unregulated entities to help meet its objectives. At the very least, this should be replicated for the FCA in relation to its own present objectives.
“Indeed, there may be a good case to exceed the FPC’s power, given the fast-paced nature of risks consumers may face at the perimeter, and the FCA itself should be able to determine whether it should gather data from non-regulated entities, as needed to meet an expanded remit beyond the perimeter.
“The committee recommends the Treasury undertake research on this point, and in doing so canvass the views of FCA. The committee would then welcome the Treasury’s views in its response to this report,” they added.
Highlights significant harm
The regulator welcomed the report and the issues it raised.
An FCA spokesperson said: “This report rightly highlights a number of cases where members of the public have suffered significant harm and have not had the protections they think they are entitled, because of the complexity of the legislative framework for regulated activities.
“This complexity is an issue the FCA has raised over a number of years, so we welcome this report which is an extremely useful contribution to that debate and we look forward to working with parliament, Treasury and others to examine the recommendations.”